Page 216 - DMGT407Corporate and Business Laws

Unit 8: Formation of a Company

Notes
The holding firm will account for a critical part of the State Bank group’s plan for the
future, it is pointed out.
The group is soon expected to see some action on the subsidiaries, courtesy a proposal to
start offering shares to the public.
Question
What are the advantages and obstacles in the move of this formation process taken by SBI?

Source: http://www.thehindubusinessline.in/2007/08/03/stories/2007080352230600.htm

8.5 Summary

Promotion is a term of wide importance denoting the preliminary steps taken for the
purpose of registration and floatation of the company.

The persons who assume the task of promotion are called promoters.
Promoters have been described to be in relationship of trust and confidence with the
company.

Where there are more than one promoters, they are jointly and severally liable and if one
of them is sued and pays damages, he is entitled to claim contribution from other or
others.
For purpose of registration of company, three documents required to be presented to the
registrar are (i) the memorandum (ii) the articles, if any; (iii) the agreement, if any, which
the company proposes to enter into with any individual for appointment as its managing
or whole-time director or manager.

A company cannot be registered by a name, which in the opinion of the Central Government
is undesirable.

The certificate of incorporation is conclusive evidence that all the requirements of the
Companies Act in respect of registration and of matters precedent and incidental thereto
have been complied with.
When a company has been registered and has received its certificate of incorporation, it is
ready for ‘floatation’, that is to say, it can go ahead with raising capital sufficient to
commence business and to conduct it satisfactorily.
In the case of every public company having a share capital, it is absolutely necessary to
obtain a certificate to commence business. This certificate can be obtained only after
‘floatation’ of the company.
The certificate to commence business entitles the company to commence business given in
the main objects clause of the memorandum.

8.6 Keywords

Articles of Association: They are basic internal rules of operation for a business that govern
what tasks need to be done, what positions are required to perform and how the processes in
place are to be performed.
Certificate to Commence Business: A certificate that entitles the company to commence business
given in the main objects clause of the memorandum.

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